American Airlines reverses profit-sharing course

SusanCarey

American Airlines Group Inc., which hasn't allowed employee profit-sharing in new labor contracts reached since its late 2013 merger with US Airways, changed course Wednesday and said it would offer a program that would pay 5% of pretax profits to all but management employees based on this year's earnings.

The company, the largest U.S. airline by traffic, had long argued that employees want defined pay increases and certainty in their pay checks. It has given employees significant raises in the new contracts reached since the merger. But some workers were unhappy with that thinking, particularly because employees at three other large carriers do have such perks.

"We are taking this step because we have heard from many of you that a profit-sharing plan is important to our success as a team," Doug Parker, American's chief executive, said in an employee memo. "Although we continue to believe the most effective way to increase compensation is through higher base pay, we recognize there is a team-building component to profit-sharing."

While the 5% rate is lower than that paid by American's rivals, Mr. Parker said in the memo, American plans to offer higher hourly pay rates than those same peers in contracts being negotiated now and in the future.

Last fall, the president of the flight attendants union at American was forced to resign from her post ahead of schedule after she indicated she wouldn't seek re-election. Some of the attendants were unhappy with her over the union's agreement to a postmerger labor contract that didn't include profit-sharing.

More recently, the pilots union leadership at American has accused management of allowing a "toxic culture" to return. The union hasn't mentioned profit-sharing but is asking that provisions in its labor contract be implemented and that American desist from contractual abuses. The group's leadership also has called for facilitating "lasting and durable" cultural change.

In recent employee presentations and in remarks at an investor conference, Mr. Parker said the company needs to do a better job of engaging its employees. He acknowledged that through the course of decades of management-labor mistrust and a cycle of traumas from 9/11 to bankruptcy, some front-line workers "still don't trust us" and believe more bad things will happen even through the airline is in the best financial and market position in its history.

"Instituting a profit-sharing plan outside of negotiations is unprecedented in our business," Mr. Parker said in the memo Tuesday. "To be in a position of strength and stability, and provide certainty to you and your families is exactly what our merger set out to do."

The program would need to be approved by the unions.

Delta Air Lines Inc., the No. 2 U.S. carrier by traffic, has an extremely generous profit-sharing plan but has trimmed the payout, effective in 2017, for the majority of its workers who aren't unionized. The company paid out a total of $1.5 billion in profit-sharing last year on record financial results.

A tentative labor contract with its only large unionized group, the pilots, was widely rejected last summer. Among the aspects of the deal they didn't like, many pilots said later, was Delta's proposal to limit the profit-sharing plan that had become highly lucrative due to the airline's strong financial results. It remains to be seen what the profit-sharing formula will be in a new contract that is ratified.

Southwest Airlines Co. and United Continental Holdings Inc. also offer profit-sharing to employees, but the terms are less lofty than what Delta was offering. Southwest paid $620 million last year on $2.2 billion in profit. United paid $698 million in a year it earned $7.3 billion.

Some investors worry that despite record airline profits and falling fuel prices, industry labor costs are climbing. Employee pay and benefits have returned as airlines' biggest expense item, instead of fuel. Now that airlines are highly profitable, its employees are demanded to be rewarded in new contracts for aiding in the turnaround.

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